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Truth in Negotiations Act By: FRL 328 Class – Spring 2009 Contract Cost & Pricing Techniques- Negotiations.

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Presentation on theme: "Truth in Negotiations Act By: FRL 328 Class – Spring 2009 Contract Cost & Pricing Techniques- Negotiations."— Presentation transcript:

1 Truth in Negotiations Act By: FRL 328 Class – Spring 2009 Contract Cost & Pricing Techniques- Negotiations

2 What is “TINA”? Truth in Negotiations Act, aka “TINA”, was enacted on September 10, Federal Law whose purpose is to protect the Government from defective pricing when negotiating Sole Source, Non-Competitive Contracts with an award worth $650,000 or more. Requires the contractor to submit cost or pricing data that is certified to be Accurate, Current, and Complete as of the date of agreement on price. FAR Requiring cost or pricing data (10 U.S.C. §2306a and 41 U.S.C. §254b).

3 What Purpose Does TINA Serve? Provides for full and fair disclosure by contractors during the course of contract negotiations with the Government. Since it is used for non-competitive contracts, TINA’s purpose is to protect the Government from being “ripped off.”

4 Requires the contractor, and any sub-contractors, to provide the government with current, good faith estimates of the costs to perform the contract. Establishes a standard for measuring “fair and reasonable” pricing of the contract. What Purpose Does TINA Serve?

5 Provides the Government with an assurance that the information submitted falls within a current and reasonable time frame. Gives the Government the right to obtain a remedy due to defective contract cost terms provided that the Government relied on the defective pricing data to their detriment.

6 Characteristics of TINA TINA is a ‘one-way’ law because the entire burden is on the contractor to comply with the certification of the pricing data. Allows for ‘Flow Downs’: –The Defense Contract Audit Agency, DCAA, may contact any sub-contractors of the prime contractor to obtain any cost data without first notifying the prime.

7 The Applicability of TINA TINA applies to the following: Any negotiated contract award expected to be $650,000 or more. A modification of a negotiated or sealed-bid contract involving a price adjustment of $650,000 or more. The award of a subcontract totaling $650,000 or more (if prime/higher tiered contract needs to provide cost or pricing data). A modification of a subcontract involving a price adjustment equaling $650,000 or more.

8 Cost and Pricing Data Definition under the FAR: - FAR U.S.C. §2306a(i) “All facts that a prudent buyer or seller would reasonably expect to affect the negotiations of price significantly. This factual information must be accurate, complete and current as of the date of the agreement on price, or on another date that is agreed upon by the parties. All cost and pricing data must be factually useful and cannot be a judgment by the submitting party.”

9 Cost and Pricing Data The Cost and Pricing Data (C&PD) must be FACT based, not judgments. When data contains a mixture of fact and judgments, the “commingled” data may need to be disclosed.

10 Cost and Pricing Data Types of FACT based data: 1.Vendor quotations 2.Non-reoccurring costs 3.Information on changes in production methods and in production or purchasing volume 4.Data supporting projections of business forecasts and related operations costs

11 Cost and Pricing Data Types of FACT based data (continued): 5.Unit-cost trends such as those associated with labor efficiency 6.Make-or-Buy decisions 7.Estimated resources to attain business goals 8.Information on management decisions that could have a significant bearing on costs.

12 Cost and Pricing Data Types of JUDGMENT based data: 1. Statements of opinions on the price: “The price should not be less than…” “This type of material is worth more than…” 2. Estimates based on past data that cannot be verified.

13 Cost and Pricing Data The purpose behind the Cost and Pricing Data requirements is that all available C&PD must be submitted and disclosed. Submission of cost or pricing data is a continuous process: 1.it starts when the proposal is submitted 2.anytime before and during negotiations 3.continues during the government audit

14 Cost and Pricing Data All available C&PD must be submitted as of the handshake date (of price/certification) or an earlier agreed upon cutoff date which is as close to the original price agreement date as possible. Contractor is not required to disclose any new C&PD that becomes available after the handshake date.

15 Cost and Pricing Data ‘Flow Downs’ to Sub-contractors: Sub-contractors are subjected to the same guidelines under TINA that Prime Contractors are subjected to. Prime contractors are required to perform a cost analysis of its subcontractor’s C&PD and to provide the results of the analysis to the Government in addition to the contractor’s C&PD submission. Sub-contractor C&PD must also be certified as accurate, current, and complete.

16 © Copyright 2009 John B. Wyatt III All Rights Reserved U.S. Government *The Star* Prime Contractor *1 st Tier Any sub-contractors *Government can request C&PD from any sub-contractors below the Prime at any time. Flow Downs “Christmas Tree” Doctrine

17 Cost and Pricing Data Exceptions for C&PD: FAR (a)-(b) - there is adequate competition to prevent the contractor for inflating prices - price is set by statute or regulations - the contract is for a commercial item - a waiver has been given by the head of the agency or head of the contracted program - when modifying a contract or subcontract for commercial items

18 Cost and Pricing Data Exceptions for C&PD: FAR (a) - The exercise of an option at the price established at contract award or initial negotiation does not require submission of cost or pricing data.

19 Cost and Pricing Data FAR prescribes FAR clause /21 “REQUIREMENTS FOR COST OR PRICING DATA” Or “INFORMATION OTHER THAN COST OR PRICING DATA” - instructs contractors to provide cost or pricing. data in accordance with FAR Table 15-2.

20 Duty of the Contracting Officer Prime contractor shall submit their C&PD to the Contracting Officer (CO). When certified C&PD is not required by other sections, the Contracting Officer may still require submission of data other than the C&PD.

21 Duty of the Contracting Officer Contracting Officers are limited by the following rules: Reasonable limitations on requests for sales data regarding commercial items. That the officer limit, to the maximum extent practicable, the scope of such requests to information that is in the form regularly maintained by the offeror in normal commercial operations. The Federal Government shall not disclose that is has received information relating to such commercial items if these items are exempted from disclosure under section 552 of Title 5 (exceptions to the Open Meetings rule of government agencies).

22 Consequences for Non-Compliance If the contractor submits inaccurate, incomplete, or non-current data, the contractor will be subject to contractual, civil, and possible criminal liability, including fraud. If pricing is found to be defective and the Government relied on the defective data to their detriment, this can result in the reduction of contract price, and interests may be levied.

23 Consequences for Non-Compliance If the contractor’s pricing is determined and provable by the Government to be fraudulent, then the contractor is subject (but not limited) to the following: 1.Pay Fines 2.Debarment from other government contracts 3.Jail Time

24 Defenses for violations of TINA 1)Question arises as to whether the alleged defective pricing contains “Cost and Pricing Data” as defined by TINA? - Statute 10USC §2306a states FACTS not judgments between reasonable buyer and reasonable seller that they would believe to effect price negotiations significantly. 2)Can the Government prove detrimental reliance on the defective data? - The Price Negotiated Memorandum (PNM) is a way to affirmatively establish that the Government relied on the data.

25 Defenses for violations of TINA 3)In cases of FRAUD allegation, the Government must prove “Scienter,” the specific intent to deceive. - Defective Pricing is negligence, rather than specific intent to deceive. - Specific intent MUST be proven by the Government in order to establish a prima facie case of fraud. 4) “Price Reduction for Defective Cost or Pricing Data” clause. - Right of Set Off: negligent overstatements can be offset against other negligent understatements to the degree of the understatements but no more.

26 “Price Reduction for Defective Cost or Pricing Data” clause (Right of Set Off) If “any price, including profit or fee… was increased by any significant amount” because the contractor or subcontractor submitted data “that were not current, accurate, and complete as certified,” the contract’s “price or cost shall be reduced accordingly.” The contractor’s liability is usually measured as the difference between the actual contract price based on defective data and the price that would have been negotiated had current, accurate, and complete data been disclosed. The FAR also provides that the government is entitled to “recovery of any overpayment plus interest on the payments.”

27 Government can obtain price adjustments even if contractor argues… (i) The contractor or subcontractor was a sole source supplier. (ii) The Contracting Officer should have known that the cost or pricing data was defective. (iii) Agreement was on the TOTAL cost of contract, and does not concern the cost of each individual item procured [FAR (b)(3)]. (iv) Certificate of Current Cost or Pricing data (relating to the contract) was not submitted, but Cost or pricing data was none the less required.

28 Current Issues with TINA Time consuming in the course of contract award periods: Procurement Contracting Officers (PCO) are required to repeatedly use Cost and Pricing Data (C&PD) to determine the fairness of the contract price. Potentially lengthens the firm bid period because contractors need to gather, clarify, and certify the C&PD while the PCO and DCAA analyzes it. The resulting conservatism on the PCO’s part can lead to a risk aversion to Cost/Benefit issues and the Government paying a substantial sum of taxpayer money in Proposal Preparation Costs.

29 Current Issues with TINA Changes and Revisions impacting TINA: A. The Federal Acquisition Streamlining Act (FASA) of The Federal Acquisition Streamlining Act (FASA) created a hierarchical preference of what types of information could be used by a PCO to assess “price reasonableness”: 1. Historical Data (past dealings) 2. Market and/or Catalog Price for commercial products.

30 Current Issues with TINA Changes and Revisions impacting TINA: A. The Federal Acquisition Streamlining Act (FASA) of The FASA established a “TINA WAIVER” that precluded a requirement for cost and pricing data if an exception applies.

31 Current Issues with TINA Changes and Revisions impacting TINA: B. Potential Impact of Federal Acquisition Reform Act (FARA) and Information Technology Management Reform Act (ITMRA) on TINA Create the need for exceptions to TINA for commercial items based on established catalog or market prices. Removes the government’s right to conduct a post- contract award audit of data submitted by commercial suppliers in that didn’t submit cost and pricing data.

32 Case Analysis TINA Case Michael W. Wynne Secretary of the Air Force - Appellee v. United Technologies Corporation Appellant United States Court of Appeals for the Federal Circuit 463 F.3d 1261; 2006 U.S.

33 Facts  Secretary of the Air Force is seeking a contracting price reduction under the Truth in Negotiations Act on the grounds that the contractor furnished defective cost and pricing data on its initial proposal and Best and Final Offer (BAFO).  Air Force seeking contract price reduction of $300 million.  The Board found that although the defective data had caused an increase in contract price in some instances, there were decreases in contract price in others.

34 Facts  The contract price reductions to which the Air Force was entitled were exceeded by the offsets to which United Technologies was entitled.  The Board found as a matter of fact that neither the Defense Contract Audit Agency (DCAA), the Air Force price analyst, the contracting officer (CO) nor the cost panel reviewed the BAFO cost or pricing data prior to award.

35 Appellant Arguments The Secretary argued that United Technologies furnished defective cost and pricing data. The Secretary argued that it was never necessary to establish that the Government relied upon the defective cost or pricing data to its detriment, as it was sufficient to establish that the contract price offered by the contractor was calculated using the defective cost or pricing data. Air Force was entitled to a contract price reduction under the Truth in Negotiations Act (TINA), 10 U.S.C. § 2306(f)(1983).

36 Appellee Arguments United Technologies argued that the Board's inquiry as to causation should properly focus on whether the Air Force relied on the defective BAFO cost or pricing data to award the contract to determine that the offered prices were fair and reasonable.

37 Issues Did the contractor furnish defective cost and pricing data that was inaccurate, incomplete, or non-current? Did the government rely upon the defective data to its detriment in agreeing to the contract price? Is reliance on defective data an essential element of a TINA claim that a contract price was increased by defective cost or pricing data?

38 Decision Claim was DENIED - The Board concluded that the Air Force had not shown reliance upon the defective cost or pricing data, and that "it failed to show that appellant's defective BAFO cost or pricing data caused an increase in contract price for the base year of the contract.

39 Decision The Board found that competitive forces, rather than the defective 1983 BAFO cost or pricing data were relied upon to make the awards and to exercise the options for additional purchases for fiscal years 86-90, such that the Air Force failed to show that appellant's defective data caused an increase in the contract price for these years. Air Force had failed to meet its burden of proof, as the claimant, of showing that the defective cost or pricing data caused an increase in the contract price.

40 Footstomps TINA requires that when a government contract is expected to exceed a certain value, a contractor must submit cost or pricing data and certify that, to the best of his knowledge and belief, the cost or pricing data he submitted was accurate, complete and current. That reliance on defective data is a necessary element of a TINA claim was reinforced through stare decisis by this court's decision in a precedent case, Universal Restoration, Inc. v. United States, in which we found that the government could not recover on its TINA claim, even though the contract price was calculated using defective data.

41 Footstomps In 1986, Congress considered and rejected amendments to TINA that would have eliminated the detrimental reliance requirement. Congress rejected the proposed amendment; rather than altering TINA to create a conclusive presumption of reliance, Congress codified the detrimental reliance requirement as a defense to a TINA claim. The government could not recover on a TINA claim if it did not rely on the allegedly defective cost or pricing data to its detriment.

42 THE END Thank You! Presenters (In Order of Appearance): Valeria Melendez Hazel Villanueva Levi Martinez Jaclyn Zandieh Pano Rongakos Nick Traboulay Vaughn Murray Andrew Guitierrez Lubna Khilfeh Marlon Price Shane Dini John Soh Brian Lao Eric Eusebio


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